In first American response to Israel's decision to approve 500 new West Bank homes in wake of Itamar attack, State Department calls settlement activity 'illegitimate.'

Israel's continued West Bank settlement construction runs counter efforts to resume Middle East peace negotiations, a statement by the U.S. State Department said on Sunday, a day after the government approved 500 new settlement housing units as a response to deadly Itamar attack.

On Saturday, the ministerial committee on settlement affairs decided in a nighttime meeting to approve the construction of 500 new West Bank houses, a move that came in response to a deadly attack on a family of five in the settlement of Itamar on Friday.

Earlier Sunday, an aide to Palestinian Authority President Mahmoud Abbas said that Israel's decision to approve the construction of hundreds of housing units in several West Bank settlements was " unacceptable and we oppose it."

In the first U.S. reaction to the Israeli decision, the State Department said in a statement Sunday that Washington was deeply concerned by continuing Israeli actions with respect to settlements in the West Bank."

"Continued Israeli settlements are illegitimate and run counter to efforts to resume direct negotiations," the statement said, adding that "through good faith direct negotiations, the parties should mutually agree on an outcome that realizes the aspirations of both parties."

The statement stressed that the continued peace-talks stalemate injured both parties, saying that the lack of a resolution to this conflict harms Israel, harms the Palestinians, and harms the interests of the United States and the international community."

"We will continue to press ahead with the parties to resolve the core issues in the context of a peace agreement," the statement added.

On Saturday, U.S. Secretary of State Hillary Clinton said she was shocked and deeply saddened by the killing of five Israeli family members in the West Bank.

"To kill three innocent children and their parents while they sleep is an inhuman crime for which there can be no justification," said Clinton. "The murderers must be found and brought to justice."

"We call on the Palestinian Authority to unequivocally condemn this terrorist attack and for the perpetrators of this heinous crime to be held accountable," the White House said in a statement.